Warren Buffett sold Goldman Sachs - are banks overvalued?

Warren Buffett sold Goldman Sachs - are banks overvalued?
Berkshire Hathaway Chairman Warren Buffett walks through the exhibit hall as shareholders gather to hear from the billionaire investor at Berkshire Hathaway Inc's annual shareholder meeting in Omaha, Nebraska, US, May 4, 2019.
PHOTO: Reuters

Last Friday, Berkshire Hathaway (NYSE: GS), Warren Buffett's company, revealed that it had sold 84 per cent of its position in Goldman Sachs (NYSE: GE).

Buffett's move to sell a high-profile bank gained a lot of attention, given that the current economic forecasts are looking dire. Declines of as much as 42 per cent are expected in the second quarter when the full force of the Covid-19 pandemic takes hold.

But with everything that Buffett does, context matters.

The Goldman Sachs sale is estimated to be worth US$2.5 billion (S$3.5 billion), a sizeable sum of money.

However, Berkshire Hathaway's stock portfolio is worth close to US$200 billion.

Therefore, the sale of the high-profile bank amounted to no more than 1.5 per cent of the company's overall stock holdings.

Context matters

Goldman Sachs may be a revered name in the banking community, but it is hardly Buffett's largest position in banks.

That title, according to CNBC's Berkshire Hathaway Portfolio tracker, belongs to Bank of America (NYSE: BAC), which is currently worth close to US$22 billion, easily dwarfing its prior position in Goldman Sachs.

In fact, Berkshire Hathaway still owns US$8.8 billion in Wells Fargo (NYSE: WFC), US$5.2 billion in JP Morgan Chase (NYSE: JPM) and US$4.9 billion in US Bank Corp (NYSE: USB).

The quartet occupies over 20 per cent of its overall portfolio, a position that is anything but small.

Unless that changes, it's fair to say that Buffett is still very much invested in banks.

This article was first published in The Smart Investor.

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